2018 (2) TMI 1156 - HC - Income Tax

High Court Upholds Trust Registration; Emphasizes Charitable Activities Over Finances

The High Court dismissed the appeal filed by the Revenue challenging the grant of registration under Section 12A of the Income Tax Act. The Court upheld ... Grant of registration u/s 12A - respondent has failed to produce books of accounts for FY 2013-14 - Held that:- The provision contained under Section 12A nowhere empowers the CIT to assess the objects vis-a-vis the books of accounts. Even otherwise, it is not to be seen at this stage as to whether the fulfillment of the charitable trust would eventually benefit the members of the society. If the constituent of the trust engage in some genuine charitable activity which may benefit them in some other aspect of their personality which may include their vocation in life, it would not affect the genuineness of the objects of the trust. In the case at hand, the order passed by the CIT does not say in definite terms, that the objects of the society are not charitable in nature. Merely because the trust consists of Urologist Doctors and the charitable activity may mutually benefit those members, the object itself would not cease to be charitable in nature. Appellate Tribunal has rightly interfered with the order passed by the CIT - Decided in favour of assessee. Issues:1. Appeal under Section 260-A of the Income Tax Act, 1961 challenging the order granting registration under Section 12A.2. Whether failure to produce books of accounts for FY 2013-14 affects the grant of registration under Section 12A.3. Interpretation of Section 12A regarding the scrutiny of trust objects and charitable activities.4. Comparison with relevant case laws regarding the Commissioner's role in examining trust applications.Analysis:1. The appeal was filed by the Revenue against the order of the Income Tax Appellate Tribunal granting registration under Section 12A to the respondent. The main issue was whether the Tribunal rightly allowed the registration despite the respondent's failure to produce books of accounts for FY 2013-14 before the Commissioner of Income Tax (CIT).2. The CIT rejected the registration application citing non-production of accounts. However, the Appellate Tribunal held that the CIT should not have considered the charitable nature of the trust's objects at the registration stage. The Tribunal emphasized that the CIT's role is limited to verifying procedural compliance, not the trust's charitable activities.3. Section 12A of the Income Tax Act, 1961 sets conditions for trust registration, a prerequisite for tax exemptions. The Tribunal's decision highlighted that the trust's charitable intent, not just financial aspects, should be considered for registration. The trust's objects, such as conducting medical camps for public benefit, were deemed charitable despite benefiting its members.4. Case laws like Commissioner of Income Tax vs Vijay Vargiya Vani Charitable Trust and Fifth Generation Education vs Commissioner Income Tax were referenced to support the Tribunal's stance. These cases emphasized that at the registration stage, the CIT should focus on procedural adherence and charitable nature of trust objects, not income application. The court concluded that the Tribunal rightly overturned the CIT's decision as no substantial legal question arose under Section 12A.In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision to grant registration under Section 12A based on the trust's charitable intent, despite the failure to produce specific financial documents. The judgment clarified the CIT's role in assessing trust applications and highlighted the importance of charitable objectives in determining registration eligibility under the Income Tax Act.